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Financial Inclusion and Institutional Voids: Are Digital Platforms a Solution?

2 September 2019 Leave a comment

“What drives development” has long been a fundamental question for many scholars and policymakers. One consensus reached is that financial inclusion – access to and use of formal financial services by all members of an economy – is a central tenet of development [1]. It facilitates efficient allocation of productive resources by reducing the volume of money outside the banking sector, i.e. by shrinking the informal sector [2]. Conversely, exclusion from the formal financial system reinforces social inequalities and deepens poverty.

However, the World Bank’s (2017) Global Findex Database indicates that about 1.7 billion adults across the world are still unbanked and therefore they are excluded from the formal financial system (see figure below). Evidence further indicates that almost all the unbanked population lives in developing countries and nearly half of these live in just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan.

But why are developing countries the home for the unbanked? In order to answer this question, we first need to address the cause of market failures leading to exclusion in emerging markets; namely institutional voids.

Globally, 1.7 billion adults lack an account [Source: Global Findex database [1]. Note: Data are not displayed for economies where the share of adults without an account is 5 percent or less.

Institutional theory suggests that institutions shape the conditions that drive socio-economic development and the particular rules that actors follow within a given context [3]. As Scott (1995) points out, institutions are socially constructed and embedded structures that provide the rules and frameworks upon which societies operate. If these institutions are absent or weak, it can create institutional voids that impact economic growth and development [4,5].

Therefore, while every economy should have a range of institutions (e.g. payment processing systems, contract enforcement, etc.) to support financial inclusion, many developing countries fall short. Thus, it is lack of, or weak institutional frameworks, i.e. institutional voids, in developing countries that differentiate them to a great degree from developed countries. The presence of institutional voids is apparent in the inefficiency of the formal financial systems to provide appropriate services, quality of institutions and legal origins [6]. Such institutional voids cause buyers and sellers to experience information asymmetries and uncertainty, thus creating serious operating challenges and higher transaction costs (i.e. the cost of capital) in emerging markets. All these act to constrain financial inclusion, and in effect hamper prosperity and wealth creation.

Digital platforms, which have rapidly grown in number and reach in developing countries, have the potential to generate social and economic value by filling the voids and thus building well-functioning markets. For instance, digital platforms for financial services can enable individuals and businesses to more easily reach and find previously hard-to-locate financial services. They also have the potential to facilitate the accumulation of capital by lowering search and transaction costs, reducing information asymmetries and thus fostering trust between parties [7].

Despite this recognition, however, the linkage between digital platforms and institutional voids in these contexts remains significantly underexplored. Apart from a few studies (e.g. [7]) that explored the importance of digital platforms in institutional development and capacity building in developing countries, the focus of the literature on digital platforms in emerging and transitioning economies has been mainly on the general functioning of digital platforms (e.g. business strategy, platform governance and consumer behaviour) [8]. Therefore, we need more research to better understand how digital platforms could help alleviate the negative impact of institutional voids in developing countries, such as in the banking and financial system.

References

[1] World Bank Group (2017). The Global Findex Database, Measuring Financial Inclusion and the Fintech Revolution. World Bank, Washington, DC.

[2] Sarma, M. & Pais, J. (2011). Financial inclusion and development. Journal of International Development, 23(5), 613-628.

[3] Acemoglu, D. & Robinson, J.A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown Books.

[4] Scott, W. R. (1995). Institutions and Organizations. Thousand Oaks, CA: Sage.

[5] Khanna, T., & Palepu, K. (2010). Winning in Emerging Markets. Harvard: Harvard Business Press.

[6] Zins, A. & Weill, L. (2016). The determinants of financial inclusion in Africa. Review of Development Finance, 6(1), 46-57.

[7] Drouillard, M. (2016). Addressing voids: How digital start-ups in Kenya create market infrastructure. In B. Ndemo & T. Weiss (Eds.), Digital Kenya: An Entrepreneurial Revolution in the Making(pp. 97–131). London: Palgrave Macmillan UK.

[8] Koskinen, K., Bonina, C., & Eaton, B. (2018).Digital Platforms in the Global South: Foundations and Research Agenda, Working Paper no.8Manchester, UK: Centre for Development Informatics, University of Manchester.

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Trust Issues and Ride-Hailing Platforms in Lagos, Nigeria.

The idea of building trust is often central to the adoption and use of technology platforms in general such that the processes and governance of these platforms ought to align with the realities of user-groups which are essential for a seamless service. Since 2013, the entry of ride-hailing platforms in Nigeria has increased because of an overall technology awareness in Lagos and continuous successes of existing ride-hailing companies such as Uber and Taxify (see Table 1). Ease of access, trip predictability and ease of fare calculations and payment, amongst other things have improved.

Despite its growing impact on urban transport in Nigeria, the industry has suffered several challenges such as insecurity and lack of safety for user-groups. Prior to ride-hailing platforms, the notion of trust has been integral for taxi businesses or technologies to thrive. For instance, a passenger who builds a bond with a local taxi driver such that the driver runs personal errands such as dropping off school kids.

Trust in simple terms is the belief in the ability of someone or something. There has been increasing interest in the concept of trust in online transactions since the development of the internet and e-commerce in the early 1990s (1). The concept of ‘trust’ encapsulates both offline environments and online environments such that the difference lies in the varying characteristics of these environments as well as the context in which trust is formed and maintained. In technology, “it is a belief that a specific technology has the attributes necessary to perform as expected in a given situation in which negative consequences are possible” (2).Risks and uncertainties are exacerbated because users lack total control of the processes governing ride-hailing apps.

Table 1: Ride-hailing companies in Lagos
Source: Author’s fieldwork

In the ride-hailing industry in Lagos, both drivers and passengers are aware of the risk in engaging with a complete stranger via an app which is monitored by platform companies through data analytics and algorithms. Unlike the conventional taxi industry, user-groups often build trust in platform companies based on the efficiency and reliability of their apps over time. For example, Mr Ayo, the Taxify driver has just accepted his first trip for the day, but later declines because the rider would only pay via an ‘online bank transfer’ and from experience, the driver does not trust this process because it is often a fraudulent tactic used by riders without money. Using a third-party banking app to make a transfer to the driver’s account gives the rider more power in this situation because the payment could be reversed in 24 hours if reported by the rider. If it were a card-paid trip, the driver would feel safer because the ride-hailing app acts as an intermediary between both parties such that if a conflict occurs, it can be resolved amicably.

One of the many instances where the rider loses trust is through trip manipulations by drivers.  Since Uber slashed the base fare of trips by 40% in Lagos, drivers have reacted with strategies for increasing the fare of trips through manipulative techniques (3). In 2017, Lockito, designed for testing geofencing-based apps, was being used in inflating fares by manipulating the distance of a trip.  For example, a trip that should be about 5.9km would be double the distance when the Lockito app is being used (see Figure 1).

Although drivers are responsible for altering the GPS function in the Uber app, riders become aware that the app is also vulnerable to fraudulent activities. Riders frequently monitor the Uber app, drivers’ behaviour and prefer cash payments to card payments to avoid being defrauded during trips. Although there are other factors involved such as low smartphone and card penetration overall (4), the psychological construct of trust remains central to the reliability and predictability of drivers, riders, and the algorithms behind ride-hailing apps.

Figure 1: Incorrect GPS reading vs correct GPS reading
Source: BrandSpurNG (2017)

Regardless of ride-hailing platforms’ success in Nigeria, trust issues surrounding usability and culture remain a stumbling block especially for indigenous start-ups like Oga-Taxi. More research would be needed to understand the implications on user behaviour and what coping strategies are needed to thrive in an increasingly ‘networked’ environment as well as how these strategies may create new realities in the global South.

References.

  1. Li, F., Pieńkowski, D., van Moorsel, A. & Smith, C. (2012). A Holistic Framework for Trust in Online Transactions. International Journal of Management Reviews, 14(1), pp. 85-103
  2. McKnight, D. G., Carter, M., Thatcher, J.B., & Clay, P.F. (2011). Trust in a specific technology: An investigation of its components and measures. ACM Transactions on Management Information Systems, 2(2), pp. 12 – 32.
  3. Adegoke, Y. (2017). Uber drivers in Lagos are using a fake GPS app to inflate rider fares, Quartz Africa, 13 Nov
  4. appsafrica (2015). Can Uber really work in Lagos, Nigeria? appsafrica, 2 Jun
  5. BrandSpurNG (2017). Uber Drivers In Lagos Using Fake GPS App To Inflate Fares – Report, Nairaland Forum, 14 Nov

What can we learn about e-commerce in Africa from Jumia’s IPO filing?

30 April 2019 1 comment

 

There has been growing discussion about the potential of e-commerce in developing countries. This discussion intensified recently when pan-African e-commerce firm Jumia went public in the US, becoming the “first African unicorn”.

The IPO prospectus, a 270-page outline of the firm released as part of this filing, has sparked much debate. Elsewhere, TechCrunch has dug into the financial intricacies of Jumia, and online debates have raged linked to the question “Is Jumia really an African firm?” (see here and here).

I won’t detail those two issues here. Instead, below I will discuss the insights that the prospectus provides us about e-commerce platforms operating in Africa. This is especially useful as we have been struggling with a lack of detail on e-commerce, with firms reluctant to share commercially sensitive information.

 

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1) The market for e-commerce in Africa is already large, and growing rapidly
Jumia announces that it had 4 million active customers in the year 2018, growing rapidly from 2.7 million in 2017. This translates into “Gross Merchandise Volumes”  (GMV) of €828.3m in 2018, from €507m in 2017. As these figures suggest, e-commerce is bringing in a significant number of customers on the continent and is growing at a rate of over 50% in the last year.

Regionally, the largest countries for Jumia’s business are Nigeria (29% of GMV) and Egypt (20.5%). Interestingly, in the largest 5 markets, only 50% of goods are delivered in primary cities with the rest evenly split between secondary cities and rural areas. Most customers are mobile users, which comprise 81% of all traffic in 2018.

 

2) …but making profits is a challenge. Jumia is a loss-making firm
The growing size of e-commerce has not yet translated into profits. Jumia made a €170m loss in 2018.

This is attributed to a number of factors. As a platform, sales are mainly made by third-party sellers (90%). So the €828m GMV translates to just €130.6m revenue for Jumia.  Jumia then faces high costs for operating including warehousing, delivery, sales and advertising and the platform. Once these are considered, the €130.6m turns into a €170m loss.

How does Jumia plan to become profitable in the future? By becoming a market leader in Africa, Jumia will rely on expanding markets to increase sales volumes over the coming years. Alongside this, they describe the potential of reduced costs in fulfilment (storing and delivering goods) and growing use of mobile payments that should make each transaction more efficient over time.

 

3) The role and prospects for Jumia platform sellers
Jumia has 81,000 sellers and the prospectus hints that quite a number of these are African, although there is no data provided. Interestingly, commissions from sellers for sales only contributed moderately to revenues. Jumia makes similar amounts of revenue from services such as fulfilment (delivery costs to buyers) and “value-added services” (premium services for sellers).

As Jumia grows, its aim is to attract ever more sellers to the platform. “Competition between sellers is…essential to our monetization, as it increases the appetite for sellers to use our services”. This statement suggests that the platform will move low margins and high competition, with sellers relying on value-added services as a source of expansion. For local sellers, these future directions suggest concerns about this platform supporting widespread upgrading of local SMEs in Africa.

 

4) Data is an important component of the relationship with sellers
We know that data is vital to many platforms, and Jumia is no different. A seller score “..a data-driven scoring of a seller’s performance” is a key aspect of Jumia’s relationship with sellers. The score is important to the success of sellers, where platform algorithms use this score to determine the order of products in searches. Jumia also gamifies the “seller score”, associating it with a range of other advantages for sellers.

In order to support sellers, Jumia supports third-party financial services for its sellers, using this score as a way to demonstrate creditworthiness. This mirrors alternative credit-scoring schemes we have seen elsewhere in Africa.

 

5) African e-commerce platforms face significant and often unexpected risks
Many of the challenges for Jumia are similar to those challenges of e-commerce elsewhere [1]. One key challenge repeatedly mentioned is the “…failed deliveries, excessive returns, late collections, unrecoverable receivables and voucher abuse”, with 14% of all sales (by revenue) being failed deliveries or returns. These risks particularly emerge from the use of cash payments on delivery (COD), a common approach to payments for online goods in developing countries.

Beyond this challenge, an eye-opening aspect of the prospectus is the unexpected challenges encountered by Jumia:

  • In Kenya, a Jumia warehouse was robbed and €500K of merchandise was stolen
  • In Egypt, a €5000 fine was imposed by authorities due to the platform offering “unlisted drugs”
  • In Kenya, a scam involving electronic payments suppliers led to €550K losses
  • Jumia has undertaken investigations around allegations of internal fraud and bribes in countries such as Nigeria and Morocco connected to relationships with platform sellers

 

6) Policy challenges for e-commerce in Africa are significant
In line with other platforms, Jumia operates a relatively “asset light” way across multiple countries in Africa. Even with close to a billion euro in GMV, and with offices in 18 countries, it is a tiny direct employer with around 4,800 staff in Africa.

This “asset light” approach, however, comes into collision with African governments’ desire to regulate e-commerce. Jumia discusses the challenges faced in a number of countries including taxes, particularly VAT on imports; uneven data protection rules, and restriction of cross-border personal data transfer; and regulation on financial and mobile payments.

There has been pressure for harmonising such rules globally in order to support cross-border business models of digital firms such as Jumia. However, African governments are keen to ensure that they are able to operate their economies appropriately, including collecting taxes and nurturing local firms, in the face of e-commerce imports [2]. It is therefore understandable that policy might vary according to the political goals of different nations in Africa. These challenges are likely to intensify coming years given current disagreements on harmonising e-commerce at the WTO, and African CFTA discussions on e-commerce rules still at an early stage [3].

Platform firms, therefore, require careful mapping of national rules and regulations, and in Africa the “asset light” model may only be viable to well-funded platforms. For smaller platforms, it may be better to focus on a smaller subset of countries.

 

In summary, the Jumia prospectus indicates that digital economies are expanding and we can expect to see a growing set of firms operating across the continent. However, given the challenges encountered by Jumia, easy profit and growth are not a given. For platform sellers, e-commerce provides new potential market opportunities, but careful consideration of how platforms best support them, will be vital to success.

 

References
[1] UNCTAD (2015) Information Economy Report 2015 – Unlocking the Potential of E-Commerce for Developing Countries, UNCTAD, Geneva, Switzerland.
[2] Azmeh, S. & Foster, C. (2018) Bridging the Digital Divide and Supporting Increased Digital Trade: Scoping Study, Discussion Paper, GEG Africa, Pretoria, South Africa. http://www.gegafrica.org/item/782-bridging-the-digital-divide-and-supporting-increased-digital-trade-scoping-study
[3] Foster, C. & Azmeh, S. (2018) E-Commerce and the African Continental Free Trade Agreement (AfCFTA), Discussion Paper, GEG Africa, Pretoria, South Africa. http://infomediation.net/publication-e-commerce-and-the-african-continental-free-trade-agreement-afcfta/

 

Data, Platforms and Power

19 February 2019 Leave a comment

We know that digital platforms can be very powerful, but how does their use of data relate to power?

In three ways[1] that derive from the datafication and digitisation affordances of platforms:

  1. Addressing Information Failure. Platforms succeed in part by finding ways to overcome information failures in existing markets. These failures may be sources of power for incumbents. For example, estate agents (realtors) hold power in real estate markets due to information asymmetries; such as knowledge of house sale prices.  Real estate platforms put such data into the public domain, thus undermining the power of incumbents.  Information failures may also be a source of weakness in existing markets.  For example, riders with traditional taxi firms don’t know exactly when their cab will arrive.  Platforms provide such data and so, again, undermine incumbents.

 

  1. Mashing Up. As they deal with digitised data, platforms can gain power by integrating different data streams onto the platform. Real estate platforms integrate online information about neighbourhoods.  Ride-hailing platforms integrate online maps to show cab location and routes to riders and drivers.

 

  1. Controlling New Data. By digitising transactions and associated processes, platforms create, capture and control new data. This bolsters their power; typically by creating new information asymmetries: the platforms know things that others don’t.  Real estate platforms can monitor search behaviours of buyers to understand more about which features of house listings they value most.  Ride-hailing platforms understand spatio-temporal patterns of supply and demand alongside many other behavioural characteristics of riders and drivers.

 

This simple framework can usefully be applied in order to analyse the role of data in platforms, and its contribution to power.

 

[1] Categorisation and examples developed from Drouillard, M. (2017) Addressing voids: how digital start-ups in Kenya create market infrastructure. In: Digital Kenya, B. Ndemo and T. Weiss (eds). London: Palgrave Macmillan, 97–131

How Many Platform Workers Are There in the Global South?

29 January 2019 Leave a comment

In developing countries, there has been a rapid increase in the gig economy and in the presence of digital labour platforms: defined as “a set of digital resources – including services and content – that enable value-creating interactions between consumers and individual service-providing workers”[1].

But how many workers actually work for such platforms?

I am not going to provide a reliable answer to that question but I will give some kind of ballpark figure.

We start by dividing out two types of platform work: digital gig work that involves digitisable tasks like data entry, writing copy, web design, accounting, etc; and physical gig work that involves a physical task like taxi driving, food delivery, domestic work, etc.  A previous estimate[2], updated to account for growth, would be that there were something like 10 million active digital gig workers in the global South at the start of 2019 (and around ten times that number registered on digital labour platforms but with 90% of them inactive).

So how many physical gig workers are there?  I’m going to break this down by continent since the extent of physical gig work seems to vary significantly between the three main continents of the global South.

Africa

Calculations here are based on extrapolations from just two economies, and seek to take account of wealth and population[3].  Current research for the Fairwork project estimates around 30,000 physical gig workers in South Africa; about half in taxi-driving and the rest mainly in delivery and domestic work.  Estimates for Nigeria[4] plus re-use of some of the same ratios found in South Africa, suggest 20,000 such workers.  Accounting for GDP per capita and population suggests around 60 workers per US$1,000 GDP/capita and per 1 million population; i.e. per US$1bn GDP.  Multiplying up to the overall GDP of Africa produces an estimate of c.130,000 physical gig workers in Africa.  However, given there are at least 100,000 in Egypt alone, we can at least double that to 250,000.

Asia

Similar calculations can be undertaken in Asia, based on numbers associated with platforms in India and Indonesia.  Extrapolating from estimates for taxi-driving and food delivery platforms in India[5], I estimate around 2 million physical gig workers in India.  For Indonesia[6], the figure is closer to 1 million.  Accounting for GDP suggests around 800 workers per US$1bn of GDP.  Multiplying up to the overall GDP of Asia (excluding Japan) produces an estimate of roughly 18 million physical gig workers in developing Asia.

However, there is an alternative approach, which is to exclude China in this calculation, which produces a figure of 9 million, and then take at face value claims that Didi Chuxing employs 21 million physical gig workers in China[7].  This would lead to an estimate of 30 million physical gig workers in developing Asia.

Latin America

Here, I’ve taken a simpler approach based on some national and continent-wide estimates of taxi driving[8] and then re-using ratios from the South Africa work.  This produces an estimate of something like 2 million physical gig workers in Latin America.

Summary

The basis for these estimates is flimsy, and the extrapolations are worse, so please attach a strong health warning to this material.  Better still, come up with some improved statistics.  But my ballpark figure is that there are at least 30 million platform-based gig workers in the global South; 10 million digital and just over 20 million physical.  And that the figure could be more than 40 million, which would be around 1.5% of the global South workforce.

A proportion of these workers are not relying on this as their primary source of income.  For digital gig workers, this number is anything from two-thirds to a half[9].  It may be somewhat less for the physical gig economy, so another ballpark would be that around 15-20 million workers in developing countries are relying on digital platforms for their primary source of income.

(Annual turnover is an issue for another day but, globally and summing figures for the digital gig economy[10] and main physical gig platforms Uber[11] and Didi Chuxing[12], it must be at least US$50bn.)

 

[1] Adapted from Constantinides, P., Henfridsson, O., & Parker, G. G. (2018). Introduction—Platforms and Infrastructures in the Digital Age, Information Systems Research, 29(2), 381-400

[2] Heeks, R. (2017) Decent Work and the Digital Gig Economy, GDI Development Informatics Working Paper no.71, University of Manchester, UK

[3] An alternative approach would seek to extrapolate in terms of numbers of Internet users but that is correlated with GDP, and the figures still point to a strong under-representation of Africa in platform labour and strong over-representation of China.  Put another way, factors other than wealth and Internet access are needed to explain national differences in the proportions working in the platform economy.

[4] E.g. https://www.vanguardngr.com/2018/08/uber-monthly-passenger-base-in-nigeria-hits-267000/ and https://technext.ng/2018/08/17/max-ng-3-5-things-should-know-about-ride-hailing-platform/

[5] E.g. https://qz.com/india/1385653/uber-ola-drivers-pay-the-price-for-indias-fuel-price-rise/ and https://www.livemint.com/Companies/cYbdfsYk93HFhMuC0XgaNN/Swiggy-Zomato-hike-delivery-boy-salaries-as-competition-gro.html and https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/zomato-swiggy-and-ubereats-paying-higher-cash-on-delivery/articleshow/65142563.cms

[6] e.g. http://buscompress.com/uploads/3/4/9/8/34980536/riber_7-s1_sp_h17-051_59-67.pdf and https://www.thejakartapost.com/academia/2018/11/21/the-gig-economy-and-skills-traps-in-indonesia.html

[7] E.g. https://technode.com/2018/03/19/didi-1-5-billion-abs/ and https://www.sustainabletransport.org/archives/6317

[8] E.g. https://www.reuters.com/article/us-uber-brazil/uber-rival-apps-join-forces-in-brazil-to-stem-tide-of-regulation-idUSKBN1D71KE and https://www.ft.com/content/7bf04e08-1d63-11e8-aaca-4574d7dabfb6 and https://www.globalfleet.com/en/smart-mobility/latin-america/news/chile-imposes-regulations-ride-hailing-companies and https://www.forbes.com/sites/jonathanmoed/2018/12/20/is-uber-operating-illegally-in-its-fastest-growing-region/#74c69e161925

[9] Heeks, R. (2017) Decent Work and the Digital Gig Economy, GDI Development Informatics Working Paper no.71, University of Manchester, UK

[10] Heeks, R. (2017) Decent Work and the Digital Gig Economy, GDI Development Informatics Working Paper no.71, University of Manchester, UK

[11] E.g. https://www.cnbc.com/2018/08/15/uber-q2-2018-revenue-bookings-slow-slightly.html

[12] E.g. https://kr-asia.com/losing-300m-in-2017-didi-chuxing-wants-to-turn-a-profit-in-2018-amid-fierce-competition

Crowdfarming: Platform-Enabled Investment in Nigerian Agriculture

20 November 2018 Leave a comment

Crowdfarming is fast becoming the easiest means of investing in agriculture in Nigeria. On one hand, we have smallholder farmers who have agricultural skills and farmland but lack sufficient finance.  On the other hand, there are individuals who have money to invest but lack agricultural skills and access to farmland. Intermediated by digital platforms (Figure 1), crowdfarming entails sourcing funds from several individuals (the crowd) to invest in smallholder agricultural enterprises. In some cases, investors receive returns in the form of agricultural produce, while in other cases returns are financial – that is, investors receive their initial investments plus profits [1].

Figure 1: Snapshot of a Nigerian digital platform-enabled crowdfarming webpage (source: Thrive Agric, 2018)

There are currently at least seven active (indigenous) digital platform-enabled crowdfarming agribusinesses in Nigeria. These are: Thrive Agric, Farmcrowdy, Growcropsonline, Growsel, Farmkart, eFarms and Agropartnerships. Drawing from research carried out with Thrive Agric, it is understood that investors (also called ‘farm subscribers’) are considered part-owners of farms they invest in. The contractual agreement between the crowdfarming platforms and farm subscribers provides details on the returns on investment per farm enterprise, length of the production/investment cycle (e.g. see Figure 1), insurance cover on funds invested, and secure online payments. Farm subscribers also receive regular information on the farm’s progress through email alerts and notification of final payments at the end of the production cycle. Subscribers can also apply to visit the farms they invest in.

In Nigeria, crowdfarming platforms are tapping into a large pool of financial investors who are mostly educated individuals, located in urban areas in Nigeria or in the diaspora. Thrive Agric’s model has attracted over 3500 investors, located in 10 countries (Figure 2), who have invested in nine agricultural value chains, directly supporting the livelihoods of over 12,000 farmers (Figure 3), since its inception in 2017.

Figure 2: Geographic spread of Thrive Agric’s crowdfarming subscribers investing in smallholder agricultural production across Nigeria (source: author’s field research, 2018)

Figure 3: Geographic spread of Nigerian states where crowdsourced funds are invested by Thrive Agric (source: author’s field research, 2018)

Despite its growing recognition as a means of investing in agriculture, some factors still constrain the scaling-out of the crowdfarming model beyond its current scope. These factors include:

  • Low level of awareness and trust issues: according to the Chief Technical Officer of Thrive Agric, not many people are aware of crowdfarming and its benefits to both investors and farmers in Nigeria. As such, there is still the potential for more people to invest but getting the word out there, cost effectively, remains a challenge.
  • Currency and bank transaction issues: currently, investing in Nigeria’s agriculture through crowdfarming can only be carried out in Nigeria’s currency (the Naira) due to fluctuations in foreign exchange rates. As a result, investors are required to have a Naira account to participate in this space.

Looking ahead: what does the future hold for Nigeria’s agricultural growth through crowdfarming?

Investing in Nigerian agriculture has been described as key to driving the growth of the sector and Nigeria’s economy in general [2][3]. However, the growth of Nigeria’s agricultural sector has been constrained by a myriad of factors especially those relating to low financial investments in infrastructure, agricultural research, high yielding inputs and information delivery [4]. As agricultural production in Nigeria is still largely rain-fed, the issue of timely access to finance, ahead of the rainy season, remains a reoccurring constraint to the socio-economic growth of farmers (ibid). Figure 2 shows that digital platforms are breaking down barriers to agricultural investments in Nigeria by bridging the gap between investors (both home- and diaspora-based) and smallholder farmers.

However, there is still a lot to understand in terms of the long-term impact of investing in agriculture through digital platform-enabled models like crowdfarming. Research is also needed to ascertain the nature of interaction between these platform models and the existing institutional forms that govern agricultural value chains. This will help broaden our understanding and the broader implications for the distribution of value among stakeholders along agricultural value chains that are platform-enabled.

References

[1] Flynn, P. (2015) What is Crowdfarming, Hazel Blog http://blog.hazeltechnologies.com/article-27-what-is-crowdfarming

[2] Izuchukwu, O. (2011) Analysis of the contribution of agricultural sector on the Nigerian economic development, World Review of Business Research, 1(1): 91-200

[3] Udoh, E. (2011) An examination of public expenditure, private investment and agricultural sector growth in Nigeria: bounds testing approach, International Journal of Business and Social Science, 2(13): 285-292

[4] Phillip, D., Nkonya, E., Pender, J. and Oni, O.A (2009) Constraints to Increasing Agricultural Productivity in Nigeria: A Review (Vol. 6). International Food Policy Research Institute, Washington, DC

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